Formula For Interest Coverage
What is?
Interest
Coverage rate
Interest coverage rate, also known as interest coverage multiple, is a measure of whether the pre tax profit generated by the company can be paid for the current interest rate.
The formula is: (operating profit - interest expense) interest.
expenditure
Interest Coverage is basically a risk indicator, especially when a company has experienced a downturn in its performance, and the period of free cash flow is more critical. It can indicate whether the company has the ability to pay interest to avoid debt risk and whether there is financing capability to reverse the dilemma. Obviously, the ratio is less than 1, and the situation is already very critical. It shows that the profits generated by the company are not enough to pay bank interest. In fact, when the ratio is less than 1.5, investors' vigilance will be aroused. The interest expense in the index can be found in the details of the financial charges in the notes to the financial statements.
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